Right now, the median salary in the UK is £25,791 a year. My investment aim is to achieve this amount in passive income.
In other words, I’m aiming to have the average UK salary paid to me without me having to work for it at all. Here’s how I plan to make this happen.
Dividends
For an investor like me, the easiest way to generate passive income is by owning shares in companies that distribute their earnings as dividends. By holding these stocks, I can benefit from the success of the underlying businesses without having to do anything myself.
In order to achieve £25,791 in passive income from dividends, I’ll need to have a lot invested in stocks. And that will take time to build up.
That’s why one of the most important things for me is to start saving and investing today. By getting started now, I can give myself as long as possible to build my investment portfolio.
My plan is to start with £2,000 right now. From there, I’m intending to add £100 every week.
If I can achieve a 6% annual return on average, then I should have enough invested to receive £27,791 in passive income after 30 years. I think that this can be done if I invest carefully, but I do have to accept that investments can go down as well as up.
Diversification
Share investing comes with risks, but my plan is to spread my overall investment across a number of stocks. This will help me build a diversified portfolio and hopefully reduce that overall risk.
Instead expecting diversification from the start, I aim to achieve it over time. My plan involves investing all of my £100 weekly investment in whatever I believe the best opportunity available to me at that moment is.
For example, if I think that Legal & General stock is the best investment opportunity for me one week, I’ll invest all of my weekly £100 into the company’s shares. If it’s Rio Tinto a week later, then I’ll buy £100 worth of Rio Tinto shares.
I think this approach has a couple of advantages. First, only buying shares in a company when my analysis tells me it’s the best investment I can make at that moment should reduce the risk of overpaying for the stock.
Second, investing in a variety of different companies also reduces some of my investment risk. If I eventually have my money spread out over 20, or even 30 companies, one of them getting into trouble has less effect on my portfolio than if I concentrate on just four or five investments.
My path to £25,791
Investing money in stocks means that there will be ups and downs as I go. And some investments will ultimately do better than others.
I think, however, that earning the median UK salary in passive income is a realistic ambition for me, as long as I’m disciplined with putting money aside, careful in choosing stocks to buy, and patient in letting my investments develop.